Here are some trade themes where we see value, as of December 10, 2017 (with a 2+ week delay):

Value on the Curve: (active CA trades):

  1. *** Buy cheap crisis protection. Increased Trump headline risk, equity risk and general headline risk could cause a large rally. Calls in the whites look cheap.  With the ED-FF spreads being wide, calls looks cheap relative to FFs.
  2. *** Find attractive ways to get short EDZs. Libor-FF has widened noticeably this month, and part of this could be the re-emergence of the year-end turn.
  3. ** The term structure of ED-FF looks too flat behind EDM8. Playing for reflation in the ED-FF spread curve behind EDM8 seems attractive, fundamentally and for roll.
  4. ** Buy ED 2018 meetings (relatively).  The Fed is eager to hike.  We can sell later meetings against this.
  5. ** Look at calendar spread structures in the purples (or near the long end of the curve) for roll.  This is also great insurance against the 30 years from leading the puking, and the deficit is only going to increase.  This could also protect on a crisis ease.
  6. * Look to buy cheap flies in the valley of the fly curve. Favorable roll and the Fed stopping balance sheet reinvestments should keep these supported.
  7. * Look for the ED-FF spread in front of EDM8 to narrow. While we are in a yield-grab environment, I’m not sure this should be that steep.
  8. * Look for short Euribor vs Eurodollar trades. This is a longer term convergence view.

Value on the Horizon: (“C” trades):

  • * Look at post-Draghi trades. Draghi should be out October 2019.  The ECB could finally be hiking then.
  • * Look conditional bull steepeners. Now that we’ve had a noticeable bear flattening, we should look for cheap ways to profit from any reversal or a crisis event.
  • Look at cheap longer end bearish tail trades. There is still no term premium, we have tapering ahead and there will eventually be more Treasury issuance.

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